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Do we want to motivate people to create wealth or not? It's the unspoken question, the elephant in the room, when President Obama attempts to whip up the populace with stories of "billionaires paying lower tax rates than their secretaries" and other class-warfare demagoguery.

Mitt Romney recently said his effective tax rate is probably close to 15%, because most of his income comes from long term capital gains. The admission hasn't helped his campaign much, to be kind. Warren Buffett has famously said similar things, and has become the President's biggest gift in his drive towards wealth redistribution.

Nearly since the beginning of the income tax, the government has treated long term capital gains differently than "ordinary income." In 2003 the long term capital gains rate was cut to 15%. Why are we surprised to see that people like Romney and Buffett have matched their behavior to the incentives? Surely even President Obama understands the concept of incentives. Under certain conditions, section 2011 of his Small Business Jobs Act of 2010 establishes a particularly favorable long term capital gains rate: 0%.

Presumably what everyone's attempting to foster here are wealth creation and capital formation. From wealth comes the ability to invest, which creates jobs and, if created via free market capitalism -- as opposed to crony-capitalism -- advances society. The opposite of wealth of course is poverty. We see endless government reporting and programs attempting to alleviate the latter, but little understanding of the need to create the former. If we want less poverty, we need to create more wealth.

So what a great incentive we all have: create wealth over the long term, and pay lower tax rates!

Image by AFP/Getty Images via @daylife

And indeed, this is exactly what Messrs. Romney and Buffett have done. And in creating wealth for themselves, they've created wealth for vast numbers of other people as well as jobs and opportunities for countless more. They've "given at the office", so to speak -- so why do Obama and his minions beat up on them to "give" again and again to the tax man? Stranger still, why does Buffett believe his money would be put to better use by government than by his own management?

Obama's beef with the above situation is that not everybody is equal in their ability to create wealth. Yet this is no more an injustice than my permanent inability to dunk a basketball. Do we need to punish Shaquille O'Neal, LeBron James or Kobe Bryant because I can't jump three feet into the air? While we cheer for O'Neal, James and Byrant on the court, can't we similarly cheer for the entrepreneurs in the business world who create the jobs that everyone talks about wanting?

In the end it all goes back to Obama's core belief that government itself can (and should) right the O'Neal vs. Zarras injustice by creating the opportunities for me that The Shaq somehow took away. Notice, however, that if the tax rate "inequality" between Warren and his secretary is too high for Obama, he's not proposing that we reduce the secretary's rate to that of Warren's, and then match government's spending to the resulting revenue. No, Obama wants Buffett to pay more in taxes and he's going to figure out a way to give that extra money to the secretary through additional government services, programs and transfer payments.

Note that no additional wealth is being created here. Every dollar that is to somehow benefit the secretary must be raised from Buffett, Romney, and others like them (the nefarious "one percent"), and then somehow appropriated to the secretary's benefit. Keynesians always point to the visible benefit to the secretary. In stark contrast, followers of Bastiat always "see the unseen" in the additional wealth creation that doesn't take place.

To really feel good about themselves, Obama and his followers have to assume that the government is going to do something of greater benefit to society than the creator of the wealth would do instead. There's one small problem though: it doesn't stand up to scrutiny.

Imagine the government proposes collecting an additional one million dollars in taxes from some rich person. What could the rich person do with that one million dollars instead? They could:

Spend it. Whether it's spent on luxury goods or candy and gum, it keeps people employed making the stuff.

Bank it. The bank doesn't just hold onto the money. They loan most of it out for people to buy cars, houses, start businesses and the like. They'll even loan it out to customers with poor credit ratings if Congress leans on them long enough, but that's another story.

Donate it. Countless organizations such as hospitals, churches, museums and community centers rely on donations to perform their missions, and society benefits correspondingly.

Invest it. Of the four possibilities, this is where the initial sum of money is transformed into something worth more by someone else -- that is, where value is added and wealth is created. Often enough the investments take the form of starting new companies or financing the expansion of existing companies, both of which create more jobs and ultimately put other individuals onto the same decision tree. If the investor succeeds, they'll circle back to these same four alternatives. Likewise, anywhere along the way, the investor stands to lose some or all of the money. Somehow that fact is often overlooked, and the difference between the investors who can consistently grow wealth over time versus those who can't is both incredibly instructive and woefully under-appreciated.

Which of the four rich man's activities above is harmful? Furthermore, in which of the above does government claim to have a better track record when compared to the private sector? I'd suggest that the answer to both questions is: none of the above.